Gold, silver rates crash, Sensex jumps over 900 points: Buy equities now or focus on wealth protection?

Equity benchmark Sensex jumped over 900 points on Monday, February 2, while gold and silver prices plunged sharply, leaving investors unsure about their next move. Should they increase exposure to equities or protect their wealth by staying on the sidelines?

MCX Gold February futures have crashed by over ₹47,000, or 26%, per 10 grams from their peak, while MCX silver March futures have plunged by ₹1.94 lakh, or over 46% per kg, from their peak.

On the other hand, the Sensex jumped 944 points, or 1.17%, to close at 81,666, while the Nifty 50 ended 1.06% higher at 25,088. The BSE 150 MidCap Index rose by 0.86%, while the BSE 250 SmallCap Index climbed 0.28%.

The Budget boost

One major factor behind the rally in the domestic market is buying in select large-caps after the Union Budget 2026. Finance Minister Nirmala Sitharaman avoided populism and maintained a balance between growth and fiscal prudence.

Experts said the budget is a long-term positive for the domestic economy and markets.

"Union Budget 2026 strikes a strong balance between growth and macro-economic stability, with continued fiscal consolidation improving the estimated fiscal deficit to 4.3% from 4.4% in the current year and reinforcing investor confidence," Bhuvaneshwari A., MD and CEO, SBICAP Securities Limited, noted.

"The sustained push on capex-led growth across various sunrise sectors such as semiconductors, data centres, critical minerals, electronics, biopharma, infrastructure, shipping and railways strengthens the foundation for long-term capital formation and competitiveness. With GDP growth projected at a robust 10%, the Budget reinforces India’s position as a compelling destination for long-term investment and capital market growth," said Bhuvaneshwari.

A hike in Securities Transaction Tax (STT) on futures and options (F&O) disappointed traders, but it remained short-lived.

Experts noted that the STT hike may not have a material long-term impact, as the government left the transaction tax on cash-based equity trades unchanged.

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said the STT hike is sentimentally negative in the short run, but is a welcome move in the interest of small, retail traders.

"It is important to understand that this is not a revenue-raising measure, but a decision to discourage retail traders, 92% of whom were losing money in F&O trades, from trading in the F&O market," said Vijayakumar.

Time to increase exposure to equities?

It's a time of uncertainties. No one knows how geopolitical factors, US President Donald Trump's tariff moves will evolve in the near future.

Experts say short-term investors can choose to stay on the sidelines, while long-term investors can buy quality large-cap stocks for the long term.

"During periods of uncertainty, it’s prudent to stay with large caps. Global uncertainty is likely to remain elevated, especially given unpredictable geopolitical developments. In such environments, history shows that small caps tend to suffer prolonged declines—as seen in 2008, 2013, and 2018–19—often taking years to recover," Vijayakumar explained.

"Large caps, on the other hand, typically bounce back sharply once conditions stabilise. They behave like a rubber ball—falling during stress, but recovering quickly," Vijayakumar added.

Leading large caps across key sectors offer this stability—particularly in banking and core industries. Even in difficult phases, their downside tends to be limited, and they recover faster when the market sentiment improves.

"Earnings visibility is the key differentiator. That’s why large caps tend to outperform when uncertainty fades—they have the balance sheets and business scale to deliver consistent growth once conditions improve," said Vijayakumar.

Experts believe the second half of the year will bring clearer signs of an earnings recovery which suggests investors should accumulate quality stocks on dips.

"For FY27, earnings growth for the NSE 500—which represents over 90% of India’s market capitalisation—could exceed 15%," said Vijayakumar.

Ajit Mishra, SVP of Research at Religare Broking, pointed out that valuation comfort is clearly better in large caps. Small caps are still expensive, while select large caps are available at reasonable valuations.

"As earnings visibility improves, especially in India, large caps are likely to rebound faster when markets stabilise," said Mishra.

"Very selective buying is possible in the small-cap space where earnings support is strong. Larger mid-caps are still relatively better placed. The focus should be on companies where earnings are clearly backing the price action," Mishra said.

For medium to long-term, Mishra suggests buying in the banking, metal, energy, and capital goods sectors.

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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.